The Internal Revenue Service is in desperate need of reform. With former Rep. Billy Long confirmed as its new leader, there’s a glimmer of hope that real change might finally be coming.
In his Senate Finance Committee hearing, Long pledged to run an IRS that “prioritizes customer service, identifies critical technology infrastructure needs, and ensures greater transparency and audit practices.” That may just sound like basic competence.
However, for an agency long plagued by overreach, inefficiency, and secrecy, it’s a seismic shift in the right direction.
The first, and most urgent, place Long should look to deliver on that promise is the IRS’s Pass-Through Entity Compliance Unit and the deeply flawed Revenue Ruling 2024-14.
This misguided ruling transforms routine and legal transactions into targets for audits, fines, and costly litigation, bypassing Congress and undermining the rule of law. This isn’t tax enforcement. It’s a deliberate expansion of the IRS’s authority, driven by unelected career bureaucrats, that undercuts taxpayer rights. The IRS has once again shown that no transaction is too ordinary and no business is too small to escape its reach.
This ruling is more than a technical adjustment. It’s a backdoor attempt to rewrite the tax code without congressional oversight. The agency’s rule greenlights audits of legitimate transactions, such as basis-shifting, that fully comply with the text of the law. The IRS’s Pass-Through Entity Compliance Unit is empowered to classify these lawful transactions as suspect based on nothing more than the agency’s own subjective standard.
According to the Treasury inspector general for tax administration, these audit efforts already include at least 82 open audits of large partnerships from 2021 alone. That figure doesn’t even consider audits of small and mid-size businesses operating through partnerships, which also fall within the purview of the Pass-Through Entity Compliance Unit, or the multitude of new large audits since 2021.
If this all sounds familiar, it should. Revenue Ruling 2024-14 is built on the same logic that led to the IRS’s infamous targeting scandal a decade ago, when conservative groups were singled out by former director of the IRS’s Exempt Organizations Unit Lois Lerner. While this should have been the end of the partisan overreach, the same political targeting remains. Holly Paz, once a top Lerner deputy, is now leading the IRS’s Large Business and International Division. Paz signaled her intent to use funds from the Inflation Reduction Act to target partnerships, jeopardizing manufacturing, farming, and family businesses across the country.
Even more troubling, IRS agents no longer need executive-level approval to apply the economic substance doctrine — a principle that helps regulators determine the validity of a given transaction. That power now sits with front-line auditors, allowing them to declare any disfavored transaction a violation of subjective “intent” standards. It’s a dangerous erosion of due process that leaves taxpayers with little recourse.
This revenue ruling is also legally dubious. It takes a valid anti-abuse concept and weaponizes it against honest businesses. Related-party transactions, often routine business, are now presumed guilty until proven innocent. Congress never intended for related-party transactions to be presumed guilty. The Supreme Court reaffirmed in Loper Bright Enterprises v. Raimondo that agencies cannot exceed their statutory authority. However, partisan bureaucrats at the IRS continue to act as if they are above the law.
EX-BIDEN AIDE NEERA TANDEN TELLS OVERSIGHT COMMITTEE SHE WAS AUTHORIZED TO USE AUTOPEN
The Trump administration has already rolled back other burdensome rules from the 2024 partnership guidance package. Leaving Revenue Ruling 2024-14 in place undermines those efforts and keeps taxpayers at risk. If Long is serious about restoring trust and functionality to the IRS, repealing this rule should be the first step.
This isn’t just about tax policy. It’s about determining whether the IRS is capable of acting fairly, lawfully, and with accountability. Repealing Revenue Ruling 2024-14 would signal a long-overdue return to those principles — and a small but meaningful reprieve for small businesses.
David Williams is the president of the Taxpayers Protection Alliance.